(Bloomberg Opinion) -- At the end of a two-day policy meeting on Thursday, Christine Lagarde, the new president of the European Central Bank, is expected to provide some details, however preliminary, on the bank’s strategy review, its first since 2003. Expectations are running high, and not just because Lagarde has indicated that there is “no preconceived landing zone” for the review, which is expected to be wrapped up by the end of the year. The timing is also opportune because the review comes amid a growing consensus that ECB policy now lies somewhere between a lot less effective and outright counterproductive.

Some are looking for a change in the current inflation target of “below but close to 2%” that would allow for the immediate pursuit of a de facto higher target. This could include opting for a symmetrical objective (rather than a ceiling) or make-up provisions for earlier undershoots or both.

Others, and particularly those who focus on structural rather than cyclical impediments, are hoping for an expansion of the inflation target to include more real economy considerations. They hope to nudge the ECB’s focus on inflation from an end in itself to a means to a more integrated economic objective.

And most are interested to see how far Lagarde will be able to persuade her colleagues on the Governing Council to supplement the bank’s primary inflation mandate. This involves a careful balance between avoiding mission creep, distraction and overloading policy tools while placing sufficient emphasis on her favored topics such as climate change and inequality, cryptocurrencies and other technological disruptions.

As important as these issues are for both the ECB and the well-being of a euro-zone economy facing another year of muted growth and eroding medium-term potential, it’s also crucial to identify outcomes that will most likely prevail regardless of where the ECB ends up on the bigger issues. These serve as a timely reminder to markets and, more important, to politicians, about the bank’s limited room to maneuver, especially in the absence of a more comprehensive pro-growth policy response on the part of governments. There is no central bank panacea.

First, the strategy review is an opportunity for Lagarde, who has indicated that the process will be comprehensive and open-minded, to heal some of the divisions on the Governing Council that became unusually sharp and public during the last months of the tenure of her predecessor, Mario Draghi. By guiding her colleagues toward a modernized framework, Lagarde has an opening to push them to look forward rather than just litigate what has and hasn’t worked in the past. This is helped by the fact that, before he left, Draghi essentially put ECB policy on a preset path for the next few months. Also, Lagarde’s central bank colleagues have mostly abided by her reported desire to avoid publicly discussing the review in the interim.

Second, if handled well, the strategy review can help the ECB regain better control of its external narrative. Negative interest rates and inequality concerns have fueled growing criticism about the ECB’s policy approach, and not just within the euro zone.

Reflecting concerns about the unintended consequences and collateral damage of protracted reliance on unconventional policies, some smaller open economies outside the euro zone, such as Denmark, have decided to risk an independent path. Others, such as Switzerland, are finding it increasingly hard to avoid more negative spillovers from the big regional partner. Without a new narrative that can realign interests in Europe in a positive manner, the risk of fragmentation will grow and start compounding itself.

Third, while these two outcomes can help reduce the political pressure on the ECB, they will not eliminate them for a simple reason: The strategy review is unlikely to solve the basic and more binding “lose-lose-lose” conundrum the ECB is facing.

• It is highly unlikely the review will magically produce new tools that would allow the central bank to normalize policies without risking damage to financial markets and the real economy.
• It is also hard to imagine new stimulus measures that would allow even greater intervention by the ECB without triggering a whole host of costs and risks.
• And the review, while potentially making the ECB’s current situation somewhat less challenging in the short term, is unlikely to provide a good resting equilibrium.

In a well-functioning euro zone, the strategy review would be conducted not by the ECB but by governments at both the national and regional levels. Its goal would be to design and adopt self-reinforcing measures that would promote genuine inclusive growth and allow the ECB to take more of a back seat. With that, the ECB would be in a better position to carry out a modernized policy framework with a better chance of success. Without it, and I believe regardless of whatever the monetary policy engineers can come up with, the best that the ECB can hope for from its strategy review is just some short-term relief.

To contact the author of this story: Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide."

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